Asia Foreign Policy Update Forum Address - John McCarthy

H. E. Mr. John McCarthy, Australian Ambassador to Japan

I could give other examples, eg. some changes in taxation which will be beneficial. But the main point I want to make, I think, is this; that Koizumi perhaps in concrete terms has not achieved what he said he hoped to achieve, but he has achieved part of it, and two things are clearly coming through.

One, reform is on the agenda, firmly in the mind of every Japanese in a way that it wasn’t a couple of years ago. And secondly, in all the various areas where he has sought to achieve some reform, at least beach heads have been established which will subsequently, it is hoped, allow further reform to take place.

Where is all this going to leave Japan? I think you might talk of three broad scenarios which you hear discussed quite frequently in Tokyo and outside. The first is what you might call genteel decline, and that is the view that essentially Japan is not going to recover but is it not going to collapse. It simply has too much money in the economy for it to collapse and its foreign exchange reserves are too extensive to allow it to collapse. There is no question of it being an Argentina. But, because the tough decisions aren’t going to be taken, over a couple of generations it is going to fall into irretrievable but gradual decline. And you hear that view and it’s a view that you can legitimately hold. I don’t hold it. I think it ignores the Japanese capacity for ingenuity, organisation, their technological advantages and, at the end of the day, the determination of the people not to let that happen. Also I think it ignores the changes that are beginning to take place.

But bear in the mind the population factor which is a big issue in Japan, because the population is beginning to decline, or it will from next year - from a population of 127 million it will fall to about 100 million by the middle of the century, and there will be corresponding significant changes in the age structure of the population - which has enormous implications for the economy and for supporting that group of older people. And that is something that has to be overcome and it’s very difficult.

The second, I think, view you hear is what I call the turn on the sixpence theory, and that is that the Japanese are beginning to arrive at a stage where there will be shortly consensus throughout society that drastic and radical change will have to take place and it will take place, but probably Japan has to fall lower towards the bottom before it can do that. The view is that Japan has done it before, it turned on a sixpence in the Meiji Restoration, it turned on a sixpence very, very quickly after the Second World War. I don’t see that pressure there yet, and I’m not sure that it can happen like that. It doesn’t seem to me somehow realistic. These situations take really a lot of time.

Now, the third view, and this is one which I think I subscribe to, is that Japan will continue to change and continue to reform gradually. Not as quickly as we would like it, not as quickly as many Japanese would like it, but that change will take place. And at the end of that process, maybe another 15 years, you will see as having emerged a leaner and fitter economy. That is something that I think is feasible.

Another view is that Japan won’t move sufficiently fast, some five or six years down the line, far more radical measures will have to come into effect and that the Japanese people will take those more radical measures. It might involve, for example, the collapse of the LDP and new political reconfigurations emerging which will take the necessary steps. It could happen. I don’t rule it out. But somehow it seems less likely, and it is less talked about now than it was perhaps 18 months ago.

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